The larger, more bulky, 3.5-inch hard drive could be going the way of the floppy disc as form factors shift to smaller drives that have more capacity and fewer moving parts.
The hard drive sector was hard hit by a flood in Thailand towards the end of 2011, resulting in shortages, and prices climbing, as some factories were underwater. The flooding, according to Google, was the worst in the past 50 years and resulted in more than two-thirds of the country being swamped.
However, while manufacturers are up and running again, the price of 3.5-inch hard drives has not returned to pre-flood levels, and the sector as a whole is coming under increasing pressure from solid state drives (SSDs), which benefited from higher demand - leading to lower prices - during the hard drive shortage.
There are a total of three players in the hard drive space: Seagate, Western Digital and Toshiba. Only two of these - Toshiba and Seagate - play in the traditional desktop segment after Western Digital agreed to sell its 3.5-inch manufacturing facilities to Toshiba, as part of its bid to buy a controlling stake in Viviti Technologies.
Mounting pressure
"The HDD industry will face myriad challenges in 2013," says Fang Zhang, analyst for storage systems at IHS.
"Shipments for desktop PCs will slip this year, while notebook sales are under pressure as consumers continue to favour smartphones and tablets. The declining price of SSDs will also allow them to take away some share from conventional HDDs."
An IHS iSuppli Storage Space market brief indicates the entire hard disk drive (HDD) market is under a "relentless onslaught" from tablets, smartphones, and SSDs. As a result, it notes, global market HDD market revenue this year will drop to $32.6 billion from $36.7 billion, a 12% decline.
"HDD revenue will be flat for the next few years, amounting to $32.9 billion in 2016," says IHS.
IHS notes HDDs in general will still be the dominant form of storage this year and a major growth area will come from cloud-based storage. It adds that average HDD selling prices will drop 7% this year.
Price matters
The local channel indicates that, while the price of 2.5-inch drives has come down since the flood whammy, 3.5-inch drives are still about 20% higher priced than before production was disrupted. Pierre Spies, Tarsus CEO, says the price of 3.5-inch devices is still high, and it almost seems as if vendors are protecting margins.
Mustek CEO David Kan concurs that 3.5-inch drives are currently about 20% more expensive than before the Thailand whammy. He adds that Mustek is moving to 2.5-inch drives in some of its machines because smaller capacity 2.5-inch drives have a price advantage.
Technology would have to advance and desktop chassis change before 2.5-inch drives take over from their bigger counterparts, says Kan.
Swift Consulting CEO and tech blogger Liron Segev says there are no economies of scale playing out in the 3.5-inch space, although it is not clear why this is the case. He points out that manufacturers may shoot themselves in the foot, because consumers buy based on price and capacity.
Segev says SSD will become the de facto drive in the future, although it currently does not have a large enough capacity. "In this particular case, size does matter."
Independent analyst Paul Booth notes that 2.5-inch is becoming the "norm" and is in favour at the moment. World Wide Worx MD Arthur Goldstuck says conventional hard drives will probably disappear in the long-term, and 3.5-inch will be the first to go the way of the floppy.
Goldstuck says there is an emphasis on smaller form factors with bigger capacities and less moving parts. He adds this leads to new form factors.
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